Chapter Four - Unemployment and Inflation

Unemployment

Occurs when factors of production like labor, land, and capital are idle; specifically refers to individuals actively seeking work but unable to find employment.

Working-age population

The total population of a country excluding individuals under 15, those in territories, on Aboriginal reserves, and full-time residents of institutions.

Labour Force

The total number of employed and unemployed individuals within the working-age population.

Frictional Unemployment

Unemployment that occurs during the transition between jobs or while seeking one's first job.

Structural Unemployment

A form of unemployment caused by a mismatch between the skills or location of workers and the available jobs.

Cyclical Unemployment

Unemployment that arises due to the recessionary phase of the business cycle.

Natural Rate of Unemployment

The rate of unemployment when the economy is at full employment, primarily comprising frictional unemployment.

Okun's Law

A principle stating that for every 1% of cyclical unemployment, an economy's GDP falls by 2.5% below its potential.

GDP Gap

The difference between actual GDP and potential GDP when the economy is functioning at full capacity.

Consumer Price Index (CPI)

A measure of inflation that examines the weighted average of prices of a basket of consumer goods and services.

Core CPI

An inflation measure that excludes items with highly volatile prices (fruits, vegetables, gas, fuel oil, mortgage interest rates, tobacco) , providing a clearer picture of long-term inflation trends.

Nominal Income

The current dollar value of income without adjusting for inflation.

Real Income

The purchasing power of income, calculated as nominal income divided by the price level.

Rule of 70

A formula used to estimate the number of years required for an amount to double in value at a specified annual growth rate.

Redistributive Costs of Inflation

The costs associated with inflation that shift income from the economically weak to the strong and from lenders to borrowers.

Output Costs of Inflation

Costs that result from reduced investments and economic growth due to inflation. Increasing menu costs, reducing exports and increases imports

Demand-side Inflation

Inflation caused when demand for goods and services exceeds supply, leading to higher prices. Aggregate Demand is more than the economy's capable of producing, even at full employment  

Supply-side Inflation

Caused by increase in production cost due to: union pushing nominal wage rate, increase in firms profit margins (price gouging), supply chain disruptions 

Galloping Inflation

Inflation that occurs at extraordinarily high rates.

Hyperinflation

Extreme rates of inflation that can destabilize an economy.

Discouraged Workers

Individuals who want to work but have stopped seeking employment due to a lack of success in finding jobs.

Labour Unemployment

A situation where individuals actively seeking jobs are unable to find employment.

Understated Unemployment Rate

A potential issue where the unemployment rate appears lower due to part-time workers counted as fully employed.

Overstated Unemployment Rate

A potential problem when false information is reported, such as from EI recipients or in the underground economy.

Inflation

A sustained increase in the general level of prices in an economy over time.

Price Index

A measurement that tracks the changes in price levels of a basket of goods and services over time.

GDP Deflator

An economic metric that converts output measured at current prices into constant-dollar GDP.

Employment Insurance Benefit

Government payments to unemployed individuals, which can influence the natural rate of unemployment.

Average Job Search Time

The duration it typically takes for an individual to find employment after leaving a job or finishing education.

Labor-force Participation Rate

The percentage of the working-age population that is part of the labor force, either employed or seeking employment.

Nominal and Real GDP

Nominal GDP is measured at current market prices, while Real GDP is adjusted for inflation to reflect true economic value.

Investment Level

The total amount of capital being put into productive assets, which can be negatively impacted by inflation.

Import vs Export Balance

A measure reflecting the difference between the value of imports and exports that can be affected by inflation.

Interest Rates

The cost of borrowing money, which, in real terms, reflects the rate of interest adjusted for inflation.

Shortage of Skilled Workers

A situation where the demand for labor outstrips the number of qualified candidates available, contributing to structural unemployment.

Economic Recovery

The process by which an economy regains stability following a recession, often leading to decreasing unemployment rates.